God's Pantry Food Bank, Inc. Combined Financial Statements. June 30, 2014

Transcription

1 Combined Financial Statements

2 Table of Contents Independent Auditor's Report Combined Financial Statements Combined Statement of Financial Position... 3 Combined Statement of Activities... 4 Combined Statement of Functional Expenses... 5 Combined Statement of Cash Flows Notes to the Combined Financial Statements Supplementary Information Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs Schedule of Prior Audit Findings and Their Resolution Page

3 Independent Auditor's Report To the Board of Directors God's Pantry Food Bank, Inc. Lexington, Kentucky Report on the Combined Financial Statements We have audited the accompanying combined financial statements of God's Pantry Food Bank, Inc. (a nonprofit organization) which comprise the combined statement of financial position as of, and the related combined statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the combined financial statements. Management s Responsibility for the Combined Financial Statements Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of God's Pantry Food Bank, Inc. as of, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

4 Independent Auditor's Report (Continued) Other Matters Our audit was conducted for the purpose of forming an opinion on the combined financial statements as a whole. The accompanying schedule of expenditures of federal awards on page 21 is presented for purposes of additional analysis as required by U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non Profit Organizations, and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The schedule of expenditures of federal awards has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the combined financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 17, 2014, on our consideration of God's Pantry Food Bank, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering God's Pantry Food Bank, Inc. s internal control over financial reporting and compliance. Mountjoy Chilton Medley LLP Lexington, Kentucky November 17,

5 Combined Statement of Financial Position Assets Current assets Cash and cash equivalents $ 2,682,276 Certificates of deposit 618,061 Accounts and other receivables 287,541 Unconditional promises to give 289,978 Inventory 4,281,051 Other current assets 29,906 Total current assets 8,188,813 Certificates of deposit 232,872 Investments 134,185 Unconditional promises to give, net 207,598 Property and equipment, net 4,318,957 Total assets $ 13,082,425 Liabilities and net assets Current liabilities Accounts payable $ 135,896 Accrued expenses and other current liabilities 180,099 Total current liabilities 315,995 Net assets Unrestricted 11,505,989 Temporarily restricted 1,180,441 Permanently restricted 80,000 Total net assets 12,766,430 Total liabilities and net assets $ 13,082,425 See accompanying notes - 3 -

6 Combined Statement of Activities Year Ended Temporarily Permanently Unrestricted restricted restricted Total Revenues, gains, and other support Contributions and non-federal grants $ 2,544,301 $ 792,021 $ - $ 3,336,322 Federal funding 1,106, ,106,962 Donated food 15,295, ,295,558 USDA commodities 14,658, ,658,561 Program service fees 1,051, ,051,335 Special event revenue, net of direct costs of $33, , ,847 In-kind contributions 155, ,654 Other income 291, ,198 Income from investments 6,314 2,840-9,154 Net unrealized and realized gains on investments 1,083 12,343-13,426 35,218, ,204-36,026,017 Net assets released from restrictions due to satisfaction of time or purpose restrictions 584,569 (584,569) - - Total revenues, gains, and other support 35,803, ,635-36,026,017 Expenses Program services 33,697, ,697,269 Management and general 529, ,880 Fundraising 818, ,969 Total expenses 35,046, ,046,118 Change in net assets 757, , ,899 Net assets, beginning of year 10,748, ,806 80,000 11,786,531 Net assets, end of year $ 11,505,989 $ 1,180,441 $ 80,000 $ 12,766,430 See accompanying notes - 4 -

7 Combined Statement of Functional Expenses Year Ended Supporting services Program Management services and general Fundraising Total Distribution of food/usda commodities $ 30,468,415 $ - $ - $ 30,468,415 Compensation and related expenses 1,367, , ,938 2,157,198 Freight 582, ,973 Depreciation 485,720 26,985 26, ,690 Vehicle expenses 318,636 3,098 2, ,131 Postage and direct mailings 1, , ,167 Utilities, telephone, and internet 111,932 18,005 17, ,134 Computer services and other related expenses 104,238 13,030 13, ,298 Office and other supplies 59,602 7,599 40, ,015 Repairs and maintenance 79,582 20,658 2, ,585 Advertising and promotional costs 1,580 3,324 78,157 83,061 Professional and consulting fees 13,139 25,492 40,512 79,143 Other expenses 25,866 8,042 16,913 50,821 Memberships and subscriptions 38,830 6, ,998 Property and other insurance 28,388 4, ,533 Meetings, conferences, and travel 8,648 4,991 2,239 15,878 Printing ,063 9,078 $ 33,697,269 $ 529,880 $ 818,969 $ 35,046,118 See accompanying notes - 5 -

8 Combined Statement of Cash Flows Year Ended Cash flows from operating activities Change in net assets $ 979,899 Adjustments to reconcile change in net assets to net cash provided by operating activities Bad debts 13,149 Provision for uncollectible unconditional promises to give 4,854 Net unrealized and realized gains on investments (13,426) Contributions and non-federal grants restricted for purchases of property and equipment (471,099) Donated property and equipment (24,200) Net loss on sales/disposals of property and equipment 868 Depreciation 539,690 Changes in assets and liabilities Accounts and other receivables (112,424) Unconditional promises to give 206,528 Inventory (899,064) Other current assets 10,388 Accounts payable (18,706) Accrued expenses and other current liabilities 26,765 Net cash provided by operating activities 243,222 Cash flows from investing activities Proceeds from sales of investments 24 Proceeds from sales/disposals of property and equipment 1,750 Net purchases of certificates of deposit (3,636) Purchases of investments (14,066) Purchases of property and equipment (485,784) Net cash used in investing activities (501,712) Cash flows from financing activities Proceeds from contributions and non-federal grants restricted for purchases of property and equipment 471,099 Change in cash and cash equivalents 212,609 Cash and cash equivalents, beginning of year 2,469,667 Cash and cash equivalents, end of year $ 2,682,276 See accompanying notes - 6 -

9 Combined Statement of Cash Flows (Continued) Year Ended Supplemental disclosure of non-cash items: Value of donated food received $ 15,295,558 Value of USDA commodities received $ 14,658,561 In-kind contributions $ 155,654 See accompanying notes - 7 -

10 Notes to the Combined Financial Statements Note A - Nature of Organization and Operations/Combined Financial Statements The accompanying combined financial statements include the accounts of God's Pantry Food Bank, Inc. (GPFB) and the WOKIT Cluster (WOKIT), hereafter collectively referred to as the Food Bank. GPFB is a nonprofit organization which was founded in The mission of GPFB is to reduce hunger in Kentucky through community cooperation, making the best possible use of all available resources. As a member of both Feeding America, a nationwide network of food banks and the leading domestic hunger-relief charity throughout the United States, and the Kentucky Association of Food Banks, GPFB distributes food and grocery products, strives to increase public awareness of domestic hunger, and advocates for policies that benefit hungry Americans. In addition to its Lexington, Kentucky facility, GPFB operates a warehouse in Winchester, Kentucky, as well as distribution centers in London, Kentucky and Prestonsburg, Kentucky. GPFB is primarily supported by contributions/grants (including federal funding) and the receipts of food (including U.S. Department of Agriculture commodities). During 2014, GPFB distributed approximately 27 million pounds of food (including U.S. Department of Agriculture commodities) including approximately 8 million pounds of fresh produce, through its approximately 400 member agencies, serving a 50-county service area in central and eastern Kentucky. GPFB is a member of WOKIT, a cluster of nine food banks in West Virginia, Ohio, Kentucky, Indiana, and Tennessee created pursuant to a contractual agreement. WOKIT strives to alleviate hunger through a cost effective food bank network which equitably shares resources in the spirit of trusting cooperation. WOKIT serves as a means to coordinate the delivery to each of its members, product (donated food) available through Feeding America. GPFB serves as the WOKIT host food bank. The nine Chief Executive Officers/Executive Directors serve on the WOKIT Steering Committee. WOKIT operates under the terms of an annual cluster contract (contract). Under the terms of the contract, the budgeted operating expenses of WOKIT for the contract period, excluding freight costs, are allocated to each member through dues based on the actual number of pounds received by the member during the previous calendar year. Additionally, each member agrees to reimburse WOKIT for its share of the freight costs incurred by WOKIT on behalf of the member. All significant inter-company accounts and transactions have been eliminated in combination. Note B - Summary of Significant Accounting Policies 1. Basis of Accounting: The accompanying combined financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). The Financial Accounting Standards Board Accounting Standards Codification (ASC) is the sole source of authoritative GAAP. 2. Basis of Presentation: The accompanying combined financial statements are presented in accordance with the ASC. Under the provisions set forth therein, net assets, revenues, and gains (losses) are classified based on the existence or absence of donor imposed restrictions as follows: Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that can be fulfilled by actions of the Food Bank pursuant to those stipulations or that expire by the passage of time. Permanently restricted net assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the Food Bank. Generally, the donors of such assets permit the Food Bank to use all or part of the income earned on the assets

11 Notes to the Combined Financial Statements (Continued) Note B - Summary of Significant Accounting Policies (Continued) 3. Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 4. Cash and Cash Equivalents: For purposes of the combined statement of cash flows, the Food Bank considers all highly liquid instruments, not designated for investment purposes, with a maturity when purchased of three months or less to be cash equivalents. To the extent there is balance of cash/cash equivalents (approximately $48,000 at ) remaining upon termination of the WOKIT contractual agreement (if applicable), such amount would be distributed, within 60 days of termination, to the nine member food banks pursuant to the contractual agreement. 5. Certificates of Deposit: Certificates of deposit are carried at cost adjusted for accumulated interest earned through year-end. 6. Accounts and Other Receivables: Accounts receivable are recorded at net invoice amounts. The Food Bank generally does not require collateral and does not accrue interest on accounts receivable. A receivable is considered past due if payment has not been received within the stated terms. When applicable, the Food Bank provides an allowance for doubtful accounts or other receivables based on historical collection experience and a review of the current status of existing receivables. The allowance represents an amount, which, in management's judgment, will be adequate to absorb future losses on existing receivables that may become uncollectible. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to the receivable. No allowance for doubtful accounts or other receivables is reflected on the accompanying combined financial statements as of and for the year ended. Management considers all accounts and other receivables to be fully collectible. 7. Unconditional Promises to Give, Net: Unconditional promises to give, net of an allowance, are comprised of unconditional promises to give including those with collection periods in excess of a year. Unconditional promises to give expected to have collection periods in excess of a year are recorded after discounting them to the present value of future cash flows using a risk free interest rate. The related allowance is based on management s review of each individual unconditional promise to give. 8. Inventory: Inventory consists of food that has been donated, U.S. Department of Agriculture (USDA) commodities passed-through to the Food Bank by the Kentucky Department of Agriculture Division of Food Distribution, and food purchased by the Food Bank. Donated food and USDA commodities inventory (see also Note F) is valued at an approximate average wholesale value of one pound of donated product based on an annual study performed by Feeding America. Purchased food inventory is valued at cost determined on a first-in, first-out basis

12 Notes to the Combined Financial Statements (Continued) Note B - Summary of Significant Accounting Policies (Continued) 9. Investments: The Food Bank carries investments in marketable securities with readily determinable fair values and all investments in debt securities at their fair values, as determined by quoted market prices. Investment income on donor-imposed restricted investments is reported as unrestricted support if the restriction is met in the same period the income is received or earned. Unrealized and realized gains and losses are included in the change in net assets on the accompanying combined statement of activities. All investment securities are subject to the risks common to financial markets, including interest rate risk, credit risk, and overall market risk. Due to the level of risk associated with all investments, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported on the accompanying combined financial statements. Investments are monitored by GPFB s Board of Directors. Though the market value of investments is subject to fluctuations on a year-to-year basis, management believes GPFB s investment policies are prudent for the longterm welfare of GPFB. 10. Property and Equipment, Net: Property and equipment is stated at cost at the date of acquisition or estimated fair value at the date of donation in the case of gifts. Donated property and equipment is reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Property and equipment that is donated with explicit restrictions regarding the use of such assets and contributions/grants that must be used to purchase property and equipment are reported as temporarily restricted support. Absent donor stipulations regarding how long donated property and equipment must be maintained, the Food Bank reports expirations of donor restrictions when the donated or purchased assets are placed into service. At that time, the Food Bank reclassifies the temporarily restricted net assets to unrestricted net assets. The Food Bank capitalizes all expenditures for fixed assets which are in excess of $1,000. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, which range from three to forty years. Repairs and maintenance that do not improve or extend the useful lives of the respective assets are expensed as incurred. 11. Contributions and Grants: Contributions and grants are recognized as revenues in the period received or unconditionally pledged and are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and nature of any donor restrictions. Restricted contributions and grants whose restrictions are satisfied in the period the contributions or grants are received are reported as unrestricted. Restricted net assets are reclassified to unrestricted net assets upon satisfaction of the time or purpose restriction. Contributions of assets other than cash are recorded at their estimated fair value. The Food Bank treats donated food (including USDA commodities) as unrestricted support. 12. Shared Maintenance Revenue: The Food Bank charges recipient agencies 0-19 cents per pound relative to the receipt and distribution of donated food to the ill, needy, and/or infants. The shared maintenance fee is to offset a portion of the costs associated with the donated food including the receiving, storage, and distribution costs incurred by the Food Bank. Shared maintenance revenue is included in program service fees on the accompanying combined statement of activities

13 Notes to the Combined Financial Statements (Continued) Note B - Summary of Significant Accounting Policies (Continued) 13. Special Event: Each year, GPFB holds its annual Taste of the Bluegrass event. Special event revenue is reported net of the applicable direct costs on the accompanying combined statement of activities. 14. In-Kind Contributions: Donated services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Food Bank. No amounts are recorded for the volunteers who have donated their time to the Food Bank throughout the year since the recognition criterion is not met. See also Note M. 15. Freight Costs: Freight costs, the costs associated with having donated and purchased food delivered to its warehouse, are expensed by the Food Bank as incurred. Such costs total approximately $583,000 for the year ended. 16. Advertising Costs: The Food Bank uses advertising to promote its programs among the audiences it serves. Advertising costs are expensed as incurred. Such costs total approximately $75,000 for the year ended June 30, Such amount principally consists of in-kind contributions of public service announcements provided by various media outlets (see also Note M). 17. Functional Allocation of Expenses: The costs of providing various programs and other activities are summarized on a functional basis on the accompanying combined statement of activities. Directly identifiable expenses are charged to the applicable programs and supporting services. Expenses related to more than one function are allocated among the programs and supporting services benefited. Management and general expenses include those expenses that are not directly identifiable with any other specific function, but provide for the overall support and direction of the Food Bank. 18. Income Taxes: GPFB has been granted exempt status by the Internal Revenue Service under Internal Revenue Code Section 501(c)(3) as a non-profit organization that is not a private foundation. When applicable, the Food Bank recognizes uncertain income tax positions using the more-likely-than-not approach as defined in the ASC. No such uncertain tax positions have been reflected on the accompanying combined financial statements. GPFB s 2010 through 2013 tax years remain open and subject to examination. 19. Subsequent Events: The Food Bank has evaluated events occurring subsequent to year-end through the date of the Independent Auditor s Report, the date the accompanying combined financial statements were available to be issued

14 Notes to the Combined Financial Statements (Continued) Note C - Concentrations At various times throughout the year the Food Bank may maintain balances, including with respect to certificates of deposit, in excess of federally insured limits. For the year ended, 83% of total revenues, gains, and other support consists of the revenue from donated food and USDA commodities received (42% and 41%, respectively). Note D - Certificates of Deposit At, certificates of deposit (with current interest rates and maturities) are as follows: Maturing within one year Community Trust Bank (0.60%, matures November and December 2014, respectively) $ 180,763 JPMorgan Chase (0.10%, matures May 2015) 179,577 BB&T (0.15%, matures May 2015) 154,636 Forcht Bank (0.20%, matures July 2014) 103,085 $ 618,061 Maturing in more than one year Fifth Third Bank (1.24%, matures January 2017) $ 232,872 Note E - Unconditional Promises to Give, Net At, net unconditional promises to give consist of the following: Estimated to be collected in less than one year $ 289,978 Estimated to be collected in one to five years 238, ,927 Less allowance (13,554) Less discounts to net present value (17,797) Unconditional promises to give, net 497,576 Less current portion (289,978) Unconditional promises to give, net, non-current portion $ 207,598 The discount rate with respect to outstanding unconditional promises to give which are estimated to be collected in one to five years is 5.00%

15 Notes to the Combined Financial Statements (Continued) Note F - Inventory At, inventory consists of the following: USDA commodities $ 2,962,912 Donated food 1,132,340 Purchased food 185,799 $ 4,281,051 The majority of the food that is distributed by the Food Bank has either been donated or has been received from the U.S. Department of Agriculture (USDA) under federal financial assistance programs (see also Note C). The approximate average wholesale value of one pound of donated food at the national level was determined by Feeding America to be $1.72 for the year ended. Revenue from donated food and USDA commodities received, as well as the related values of donated food and USDA commodities distributed and undistributed donated food and USDA commodities inventory as of year-end, are estimated by valuing the respective number of pounds at the per pound value. The following table presents a summary of the number of pounds and the estimated values of donated food received and distributed during the year ended : Pounds Value Received 8,892,766 $ 15,295,558 Distributed 9,039,266 $ 15,547,538 The Food Bank receives and distributes commodities (food) it receives from the USDA under the Commodity Supplemental Food Program (CSFP) and the Emergency Food Assistance Program (TEFAP). Both federal programs are administered at the state level by the Kentucky Department of Agriculture Division of Food Distribution (Division). The USDA commodities are actually passed-through to the Food Bank by the Division to be distributed to the intended recipients. CSFP provides a monthly box of nutritious food products to low-income pregnant, postpartum, or breastfeeding women, infants and children up to and including the age of five, and elderly persons of at least sixty years of age. The food received under TEFAP is designated for non-profit agencies serving low-income individuals and families through their emergency meal and pantry programs. Generally each month the Division reimburses the Food Bank for the costs (not to exceed the total amount of costs under each program approved for a two-year period to the extent funds are available at the state level) associated with storing, transporting, and distributing these products based on the number of CSFP recipients served or the number of pounds of TEFAP food distributed

16 Notes to the Combined Financial Statements (Continued) Note F - Inventory (Continued) The following table presents a summary of the number of pounds and the estimated values of USDA commodities received and distributed during the year ended : Pounds Value Received 8,522,419 $ 14,658,561 Distributed 7,913,214 $ 13,610,728 Note G - Investments At, investments are as follows: Vanguard Total Bond Market Index Fund $ 31,541 Vanguard 500 Index Fund 25,010 Vanguard REIT Index Fund 18,264 Vanguard Mid-Cap Index Fund 18,912 Vanguard Explorer Fund 16,538 Aetna/Coventry Health Care common stock 8,838 Bluegrass Community Foundation investment pool 15,082 $ 134,185 Note H - Property and Equipment, Net At, net property and equipment consists of the following: Land and buildings $ 4,089,446 Warehouse equipment 1,743,591 Vehicles 1,360,972 Office furniture and equipment 331,041 Construction in progress 122,223 7,647,273 Accumulated depreciation (3,328,316) $ 4,318,

17 Notes to the Combined Financial Statements (Continued) Note H - Property and Equipment, Net (Continued) At, construction in progress represents expenditures relative to constructing a distribution center in Morehead, Kentucky ($61,293) and the expenditures relative to implementing an inventory barcoding system ($60,930). Management estimates that GPFB will ultimately expend approximately an additional $440,000 in total relative to the construction of the distribution center and placing the inventory barcoding system into service (largely construction of the distribution center). Management anticipates that both the Morehead facility and the inventory barcoding system will be placed into service during the fiscal year ending June 30, Depreciation expense totals $539,690 for the year ended. Note I - Bank Line of Credit GPFB has access to borrowings under an unsecured bank line of credit under which there are no borrowings outstanding at (nor did GPFB borrow under the line of credit during 2014). The line of credit provides for borrowings up to an aggregate principal amount of $400,000 bearing interest at the bank's Index Rate subject to a floor of 5.00% (interest rate of 5.00% at ). Interest is payable monthly. The outstanding principal amount, and the unpaid interest accrued thereon, is due at maturity (January 18, 2015). Note J - Restricted Net Assets Temporarily restricted net assets include contributions or grants for which donor imposed restrictions have not been met as of year-end. At, temporarily restricted net assets consist of various contributions and grants restricted for certain program services and other purposes as follows: Time restrictions Aetna/Coventry Health Care common stock $ 8,838 Purpose restrictions Capital campaign 596,913 Backpack program 170,904 To purchase produce 138,000 To purchase property/equipment 123,021 After School Snack program 68,000 Child Hunger program 44,000 Endowment funds 30,265 Other 500 $ 1,180,441 The donor of the Aetna/Coventry Health Care stock stipulated that no more than one-tenth of the shares could be sold at the end of each year over the course of a ten year period. If and when the shares are sold, the proceeds therefrom can be used by GPFB at its discretion

18 Notes to the Combined Financial Statements (Continued) Note J - Restricted Net Assets (Continued) Permanently restricted net assets include contributions or grants, which require the corpus to be invested in perpetuity with the income thereon made available for operations in accordance with donor restrictions. Permanently restricted net assets as of consist of an $80,000 grant from the Steele-Reese Foundation, Inc. (see also Note K). Note K - Endowment Funds In accordance with GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law In approving endowment, spending, and other related policies, as part of the prudent and diligent discharge of its duties, GPFB s Board of Directors, as authorized by Kentucky law, has relied upon the actions, reports, information, advice, and counsel taken or provided by its duly constituted committees and the duly appointed officers of GPFB and in doing so has interpreted the law to require the preservation of the historic dollar value of donor restricted endowment funds, absent explicit donor direction to the contrary. The portion of a donor restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by GPFB in a manner consistent with the standard of prudence prescribed by the Uniform Prudent Management of Institutional Fund Act (UPMIFA). In accordance with UPMIFA, GPFB considers the following factors in making a determination to appropriate or accumulate donor restricted endowment funds: the purposes of GPFB and the respective endowment fund other resources of GPFB the investment policies of GPFB the duration and preservation of the endowment fund the expected total return from income and the appreciation of investments general economic conditions the possible effect of inflation and deflation Return Objectives and Risk Parameters There are not separate investment policies relative to endowment funds. GPFB does however have investment policies, approved by the Board of Directors, for investments as a whole which address endowment funds. The Board of Directors has appointed a Finance Committee to execute its investment policies. The primary goals of the investment policies are to preserve principal, maximize return through income on investments and appreciation of capital within acceptable levels of investment risk, and to provide a liquid source of funds to support operations. The investment policies work to achieve these objectives

19 Notes to the Combined Financial Statements (Continued) Note K - Endowment Funds (Continued) Strategies Employed for Achieving Return Objectives GPFB s strategic asset allocation provides for diversification among asset classes and the achievement of its investment objectives within the established risk tolerance parameters. Spending Policy and How the Investment Objectives Relate to the Spending Policy GPFB does not have a specific spending policy relative to endowment funds. The Finance Committee annually evaluates the cash needs of GPFB to determine whether any endowment fund investment proceeds should be allocated for operations. At, endowment net assets consist of the following: Temporarily Permanently Unrestricted restricted restricted Total Board designated $ 15,082 $ - $ - $ 15,082 Donor restricted - 30,265 80, ,265 $ 15,082 $ 30,265 $ 80,000 $ 125,347 Changes in endowment net assets during the year ended are as follows: Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, beginning of year $ 2,798 $ 14,643 $ 80,000 $ 97,441 Contributions 11, ,043 Income from investments 137 2,840-2,977 Net unrealized and realized appreciation 1,104 12,782-13,886 Endowment net assets, end of year $ 15,082 $ 30,265 $ 80,000 $ 125,

20 Notes to the Combined Financial Statements (Continued) Note L - Fair Value Measurements The ASC provides a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as described below: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs such as quoted prices in active markets for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active or unobservable inputs that are derived principally from or corroborated by observable market data. Level 3 - Unobservable inputs that are based on the Food Bank s own assumptions as to how knowledgeable parties would price assets or liabilities that are not corroborated by market data. The following is a description of the valuation methodologies used for the assets (investments) measured at fair value. There have been no changes in the methodologies used to determine fair value at. Common stock: Valued at the quoted market price of the shares held by the Food Bank at year-end. Equity index and fixed income mutual funds: Valued at the net asset value of the shares held by the Food Bank at year-end. Investment pool: Valued at the net asset value of the units held by the Food Bank at year-end. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Food Bank believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table sets forth by level within the fair value hierarchy, the Food Bank s investments at fair value at : Fair value Level 1 Level 2 Level 3 Common stock $ 8,838 $ 8,838 $ - $ - Equity index mutual funds 78,724 78, Fixed income index mutual funds 31,541 31, Bluegrass Community Foundation investment pool 15,082-15,082 - $ 134,185 $ 119,103 $ 15,082 $

21 Notes to the Combined Financial Statements (Continued) Note M - In-kind Contributions In-kind contributions revenue for the year ended consists of the following: Advertising and public service announcements $ 75,450 Vehicle 24,200 Project supplies 15,105 Sanitation 13,387 Building maintenance 11,510 Various gift cards 9,601 Vehicle maintenance 4,838 Various other miscellaneous gifts in-kind 1,563 $ 155,654 Note N - Retirement Plan The Food Bank has a 401(k) retirement plan (Plan) for its employees that meet the Plan s eligibility requirements. All employees are eligible after completing one year of service, as defined by the Plan, and are fully vested immediately. The Plan provides for both safe harbor and matching contributions by the Food Bank. Employees are eligible to make deferral contributions at the start of the quarter following a 60-day waiting period. The Plan does not allow for participant loans or hardship withdrawals. For the year ended, the Food Bank s contributions to the Plan total approximately $151,000. Note O - Related Party Transactions GPFB is a member of the Kentucky Association of Food Banks (KAFB). Until August 2013, GPFB s Chief Executive Officer served as the President of KAFB s Board of Directors. During 2014, GPFB paid dues to KAFB totaling approximately $20,000. Additionally, throughout the year, KAFB reimburses GPFB for the costs associated with the one employee GPFB pays on behalf of KAFB. During the year ended, GPFB invoiced KAFB for personnel costs totaling approximately $63,000. See also Note Q. Note P - Contingencies Reimbursement claims under federal and/or state programs are subject to audit and adjustment by the respective grantor agencies. Any disallowed claims might become a liability of GPFB. Management is not aware of any communications from grantor agencies regarding the lack of compliance with requirements that could result in such a liability

22 Notes to the Combined Financial Statements (Continued) Note Q - Subsequent Events Subsequent to year-end, GPFB entered into a contract totaling approximately $121,000 with respect to having a dock built at its distribution center in London, Kentucky. Subsequent to year-end, GPFB advanced KAFB (see also Note O) $50,000 under the terms of a non-interest bearing loan agreement. KAFB subsequently repaid the advance

23 Supplementary Information

24 Schedule of Expenditures of Federal Awards Year Ended Federal grantor / pass-through grantor / Federal Federal cluster and/or program title CFDA number expenditures U.S. Department of Agriculture Passed through the Kentucky Department of Education Child and Adult Care Food Program $ 31,175 Child Nutrition Cluster Summer Food Service Program for Children ,883 Passed through the Kentucky Department of Agriculture Food Distribution Cluster Commodity Supplemental Food Program - Administrative Costs ,510 Commodity Supplemental Food Program - Food Commodities ,147,600 The Emergency Food Assistance Program - Administrative Costs ,807 The Emergency Food Assistance Program - Food Commodities ,463,128 Total U.S. Department of Agriculture 14,700,103 U.S. Department of Housing and Urban Development Passed through the City of London, Kentucky Community Development Block Grants ,300 U.S. Department of Homeland Security Direct Emergency Food and Shelter National Board Program ,220 Total expenditures of federal awards $ 14,730,623 See accompanying independent auditor s report and notes to the schedule of expenditures of federal awards

25 God s Pantry Food Bank, Inc. Notes to the Schedule of Expenditures of Federal Awards Note A - General The accompanying schedule of expenditures of federal awards (schedule) reflects the activity associated with the various federal financial assistance programs under which God's Pantry Food Bank, Inc. (GPFB) receives federal funding. The amount of federal funds received and expended are subject to audit and adjustment by the respective grantor agencies. To the extent expenditures are disallowed by the grantor agency as a result of such an audit, any disallowed claims might become a liability of GPFB. Management is not aware of any communications from grantor agencies regarding the lack of compliance with requirements that could result in such a liability. In management s opinion, all expenditures of federal awards are in compliance with the terms of the related agreements and the applicable federal and/or state laws and regulations. Note B - Basis of Presentation The accompanying schedule is presented on the accrual basis of accounting. The information on this schedule is presented in accordance with the requirements of U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented on this schedule may differ from amounts presented on, or used in the preparation of, the accompanying combined financial statements. Note C - Food Distribution Cluster Per the OMB, the Food Distribution Cluster consists of CFDA numbers , the Commodity Supplemental Food Program, , the Emergency Food Assistance Program-Administrative Costs, and , the Emergency Food Assistance Program-Food Commodities. Accordingly, this cluster has been treated as a single program in determining GPFB s major programs for the year ended. Note D - Non-Cash Financial Assistance The values of U.S. Department of Agriculture (USDA) commodities (food) received and distributed during the year, and the inventory value of undistributed USDA commodities as of year-end, are estimated by valuing the respective number of pounds of such food products at an approximate average wholesale value of one pound of donated product based on an annual study performed by Feeding America. The amount of federal expenditures under the Commodity Supplemental Food Program (CFDA number ) reported on the schedule of expenditures of federal awards for the year ended includes an estimate of non-monetary expenditures (distribution of USDA commodities) totaling $6,147,600. The amount of federal expenditures under the Emergency Food Assistance Program (CFDA number ) reported on the schedule of expenditures of federal awards for the year ended includes an estimate of non-monetary expenditures (distribution of USDA commodities) totaling $7,463,128. Inventory per the accompanying combined statement of financial position as of includes an estimated inventory value of USDA food commodities in the amount of $2,962,

26 God s Pantry Food Bank, Inc. Notes to the Schedule of Expenditures of Federal Awards (Continued) Note E - Subrecipients During the year ended, GPFB distributed a total of $13,610,728 (an estimate of non-monetary expenditures) of Commodity Supplemental Food Program (CFDA number ) and Emergency Food Assistance Program (CFDA number ) food commodities to subrecipients (100% of the USDA commodities distributed under both programs). During the year ended, GPFB provided $12,933 of its Emergency Food Assistance Program Administrative Costs (CFDA number ) federal funding to Facing Hunger Foodbank to cover its costs associated with storing, transporting, and distributing food commodities provided to it by GPFB for distribution in four Kentucky counties

27 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Directors God's Pantry Food Bank, Inc. Lexington, Kentucky We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the combined financial statements of God's Pantry Food Bank, Inc. (a nonprofit organization), which comprise the combined statement of financial position as of, and the related combined statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the combined financial statements, and have issued our report thereon dated November 17, Internal Control Over Financial Reporting In planning and performing our audit of the combined financial statements, we considered God's Pantry Food Bank, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the combined financial statements, but not for the purpose of expressing an opinion on the effectiveness of God's Pantry Food Bank, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of the God's Pantry Food Bank, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether God's Pantry Food Bank, Inc. s combined financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

28 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (Continued) Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of God's Pantry Food Bank, Inc. s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering God's Pantry Food Bank, Inc. s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Mountjoy Chilton Medley LLP Lexington, Kentucky November 17,

29 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133 To the Board of Directors God's Pantry Food Bank, Inc. Lexington, Kentucky Report on Compliance for Each Major Federal Program We have audited God's Pantry Food Bank, Inc. s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of God's Pantry Food Bank, Inc. s major federal programs for the year ended. God's Pantry Food Bank, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of God's Pantry Food Bank, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about God's Pantry Food Bank, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of God's Pantry Food Bank, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, God's Pantry Food Bank, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal programs for the year ended.